A "generous offer" is when someone offers to give you something really good. For example, if someone wants to give you a job or pay a lot for something that you're selling, that's "a generous offer".
You should say "That's a generous offer" when someone offers to give you something good, but you're not sure if you want to take it. For example:
A: How would you like to come work for me?
B: Oh, really? Wow. That's a very generous offer, but actually I'm pretty happy at my current job.